Sydney, Australia -- (SBWIRE) -- 09/19/2012 -- According to recent news reports, many members of the media as well as financial experts believe that the daily deals model is a thing of the past.
For example, Farhad Manjoo in the “Slate” publication proclaimed “Ding Dong, Daily Deals are Dead.” And in Chicago Business, Joseph B. Cahill reported that “Daily Deals are a Dead End for Groupon.”
Rob Liu from Deals Extra, the second largest daily deals directory in Australia and that also operates in the UK and United States, said the general consensus is that consumers are getting tired of being spammed by deal newsletters, and that business owners are not getting enough repeat business to make running a deal worthwhile.
But as Liu, an ex-Groupon insider, noted, statistics still show strong consumer support for the daily deals model.
As a Mail Chimp Daily Deals Study found, the unsubscribe rate for daily deals email lists is less than half the industry. In addition, Liu said, according to the Groupon Annual Report 2011, fewer than 4 percent of Groupon deals are refunded. And Grail Research noted that the daily deals market is projected to grow to $4.1 billion by 2015.
Small and medium-sized businesses (SMB) also show strong support for the daily deals model, Liu said.
For example, a Groupon source said that in America alone, 57,000 businesses have run a deal with the company every quarter. Ninety-four percent of merchants are satisfied with their group buying promotions, 67 percent said it was “excellent” or “very good” and 50 percent go on to run a repeat deal, noted Telsyte Research.
“So despite strong consumer and SMB support for the daily deals model, why has Groupon's stock price dropped to a quarter of its IPO price, and why did Living Social lose $96 million last quarter?” Liu asked.
“Having worked at Groupon Australia, and being responsible for affiliate and social media marketing, my perspective is that Groupon and Living Social are declining due to operational problems.”
Specifically, Liu said, Groupon and Living Social are over paying for customer acquisition with heavy spending on paid “cost per click” advertising.
Groupon pays an average of $6 per subscriber, and Groupon and Living Social have spent over $1 billion, and $500 million on advertising, respectively, Liu noted.
Also, Liu contends, Groupon and Living Social suffer from high overhead costs from running large sales team to source deals. For example, there are currently over 6,000 people on the sales staff at Groupon.
“So to reword Mr. Manjoo’s and Mr. Cahill’s dire statements, the daily deals model is very well alive, as seen from the statistics,” Liu said.
“It's just Groupon and Living Social haven't found an efficient and profitable way to implement the model.”
As for an efficient and profitable solution, Liu suggests using a model like Yelp.com.
Yelp receives 63 million unique visitors per month, he said, most of whom are from free organic search engine traffic.
Liu said that Yelp encourages users to write reviews about businesses, and has produced millions of pages of user generated content, which ranks on search engines and receives traffic.
As for solving the problem of high overhead costs of a large sales team at these companies, Liu suggests that a different business model may be in order.
Since 90 percent of business owners have already heard about daily deals, Liu contends they do not need to receive a call every week from a sales person asking them to list on a daily deals website.
“There isn't a need for a sales person to educate business owners about the daily deals model. Business owners only care about how much exposure their business is going to get, and how much commission they need to give away,” he noted.
An efficient method of deal sourcing, Liu said, would be through a self-service daily deals listing portal, where an automated system will dramatically reduce deal sourcing overheads and afford a lowering of commissions.
This portal, with user generated reviews on businesses and specifically reviews about deals from businesses, could be monetized via a self-service daily deals listing CMS.
This approach, Liu noted, is exactly what he is currently working on at Deals Extra.
About Deals Extra
Deals Extra is currently the second largest daily deals directory in Australia, and also operates in the UK and the United States. Deals Extra is working on a new daily deals model with near zero customer acquisition cost and near zero deal sourcing costs. For more information, please visit http://www.dealsextra.com.au, http://www.dealsextra.com, http://www.dealextra.com.au and http://www.dealsextra.co.uk